MNI China Daily Summary: Monday, March 20

POLICY: China will allow foreign financial institutions to list on the domestic equity market when “conditions are ready” given the positive outlook for further opening up of its financial markets, said Lou Jiwei, director general of the Global Asset Management Forum and China’s former finance minister.

POLICY: Risks exposed by a few banking institutions in the U.S and Europe showed the rapid shift in monetary policy in major economies is generating spillover effects, said Xuan Changneng, deputy governor of the People's Bank of China (PBOC) on Saturday at the Global Asset Management Forum.

POLICY: China's reference lending rate remained unchanged on Monday, according to a statement on the PBOC website, which was in line with market expectations as the central bank kept a key policy rate steady on March 15 amid robust credit expansion and an economic rebound.

LIQUIDITY: PBOC conducted CNY30 billion of operations via 7-day reverse repos, with the rates unchanged at 2.00%. The operation led to a net drain of CNY11 billion after offsetting the maturity of CNY41 billion reverse repos today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.1884% from 2.1127% on Friday, Wind Information showed. The overnight repo average increased to 2.2852% from the previous 2.2516%.

YUAN: The currency weakened to 6.8931 against the dollar from 6.8765 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.8694, compared with 6.9052 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.8600%, unchanged from Friday's close of 2.8600%, according to Wind Information.

STOCKS: The Shanghai Composite Index down 0.48% to 3,234.91, while the CSI300 index dropped 0.50% to 3,939.08. The Hang Seng Index fell 2.65% to 19,000.71.

FROM THE PRESS: China’s central banks’ decision to cut the reserve requirement ratio (RRR) last week was not linked to the recent collapse of SVB, but was a proactive policy change to consolidate the economic recovery, according to Guan Tao, former director of State Administration of Foreign Exchange (SAFE). Guan noted a RRR cut was under discussion before the Two Sessions meeting, and although the adjustment was earlier than many had anticipated, the adjustment was made at a reasonable time based on China's economic conditions. The SVB issue was caused by rising U.S. interest rates, which is the opposite monetary policy posture to China. However, Beijing needs to be aware that both financial systems have uneven liquidity distribution between large and small banks.

The SVB collapse has created uncertainty about the direction of monetary policy globally, as keeping rates high will fight inflation but will increases stresses in the banking sector, according to People's Bank of China (PBOC) Deputy Governor Xuan Changneng. Speaking to CCTV state broadcaster, Xuan said the recent turmoil shows the rapid adjustment of monetary policy in major developed economies has spill-over effects internally and externally. In the current complex environment, the opening-up, stability and development of the Chinese market provides diversified opportunities for foreign investors, and the safe-haven attributes of China's financial assets will become more prominent going forward.

China is ready to work with partners to bring stability to the international financial system and defuse systemic risks, according to Lou Jiwei, China’s former finance minister. Speaking at a forum, Lou said the SVB collapse could bring a new round of instability that spills over into emerging markets. Following the Two Sessions, China is attaching even greater importance to preventing financial risk, through establishing a new regulatory body and central commission, he said. (Source: Global Times)